Orange Company had machinery destroyed by a fire on December 23,2016.The machinery had been acquired on April 1,2014,for $49,000 and its adjusted basis was $14,200.The machinery was completely destroyed and Orange received $30,000 of insurance proceeds for the machine and did not replace it.This was Orange's only casualty or theft event for the year.As a result of this event,Orange has:
A)$4,200 ordinary loss.
B)$15,800 § 1245 recapture gain.
C)$14,200 § 1245 recapture gain.
D)$30,000 § 1231 gain.
E)None of the above.

Question

Quizplus · Accepted Answer

The insurance proceeds exceed the adjusted basis, resulting in a gain. The gain is subject to § 1245 recapture, which is the lesser of the gain or the depreciation taken. Here, the gain is $15,800 ($30,000 - $14,200).

Orange Company Had Machinery Destroyed by a Fire on December